This article was originally published in the January 2018 issue of Think Realty Magazine as part of the sponsored “Investor Review.”
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Are you contemplating investing in property? But you do not have enough money to do so. In this article is a tip you may use as long as the person selling the property is willing to negotiate with you.
To be fair, not all sellers will be interested (or even understand) the concept outlined. Your better wager is to locate a property that the owner has great desire for selling, whether because of moving, a divorce settlement, or frustration with tenants.
Actually, if you are currently renting and thinking of using this strategy perhaps the owner would be happy to help you out! There are some variations that could be used depending upon you and your owner. Do they want the market price or are they just eager to get out of the monthly payments – maybe facing foreclosure?
The simplest way is to take over their mortgage payments – called ‘assuming’ the mortgage. You will need to be approved by the original lender to assume the mortgage. If you can’t get approved for an assumable mortgage you may as well try a ‘subject to’ assumption where you merely make payments while the property stays in the seller’s name.
You take over the first mortgage and make a 2nd mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time period – two or three years. Rather than having the money stay in a bank they can be getting a high interest over 2 or 3 years with the remainder due in full at the end of the investment term.
When the term ends you should be able to refinance the cost, or you could sell. Unless you hit a real bad market the value of the property should have risen by then.
A lot of mortgage lenders merely want to make a good investment. While your local bank could still be lacking confidence there are plenty of financial lenders that would wish to make a deal. Financiers like property investing. The mortgage is usually based on 60-70% of the value of the property, so as long as they understand they get their money back in the value of the land if you default, they don’t care what kind of income you make. Complete the deal with a 2nd mortgage done with the seller. In case you default they can still foreclose on the property and sell it, paying down the existing mortgage in the proceeds.
Now you can observe the entire picture. It is better that seller and buyer may work together. If they can’t wait for a sale, you could still give them their initial price with a little overall flexibility on their part.